In a distant galaxy…

.. far, far away from the campaign, I fall into an argument with a member of the faction of learned Ewoks who take climate change seriously.

Robert Waldmann charges me with blinkered moralism in my complaints about the European emissions trading mechanism, an offshoot of Kyoto. (On the other hand he agrees with me about Paul Krugman, and I love the URL).

Waldmann:

What case can there be against the US demanded Kyoto “loophole”. Why is it a boondoggle for a European firm to obtain very cheap credits by “paying a Chinese refrigerator factory to install a simple scrubber for fluorocarbons.” The infrared light doesn’t care whether it is reflected by European CO2 or Chinese fluorocarbons, why should we ?

Touché. It was a good deed – but still a boondoggle. Because HFCs are such extreme greenhouse gases, the alert carbon traders could apparently buy huge amounts of carbon credits for a small investment. They made a one-off arbitrage profit, courtesy of a badly-designed scheme. (Wikipedia; the journal article cited is behind a paywall and I haven’t read it). The investment would still have been made with a much lower incentive.

It is odd that Wimberley writes that “It’s not a bad result to have British polluters finance wind farms in India (footnote), but that wasn’t the intention.” What was the intention ? To fight global warming or to fight immoral consumption in Europe?

My problem with the Indian wind farms is the impossibility of really proving additionality as required by Kyoto – and the ease of conjuring up bogus evidence. The subsidy will surely have made some marginal Indian and Chinese projects profitable, but I doubt on commonsense grounds if they were a large share of the pool.

I still think that emissions trading isn’t perfect but it’s a good enough basis for policy – provided you work hard at the details and are brave on the parameters.

Wimberley’s line is “no pain no gain” but, he presents no argument as to why this is so.

I’m surprised to be asked this, but here goes. As a working assumption, markets are reasonably efficient given the existing set of property rights, other legal obligations, and available technology. The only painless, Paretian move from the market result is via improved technology. Unless you are going to rely like George Bush on technological miracles provided by European research [Update: and Japanese], you have to change the structure of rights and obligations so as to raise the relative price of carbon-intensive products and activities. This will create losers as well as winners. Losers will be people who drive a long way to work in SUVs, live in big houses chilled by air-conditioning, shop in out-of-town malls, fly frequently, keep motor boats, etc: let’s say, Republicans. Winners will be people who commute by bike or public transport, live in city flats, drive their hybrid cars to local shops, sail: say Democrats. [Update: The relative losses are a matter of logic; absolute losses a matter of fact, but obviously will exist. Stern’s estimate that temperature can be stabilised for a permanent loss of 1% in world GDP is on the low side of the CW: large but manageable. The reduction in US GDP must be higher than the world average. It’s reasonable to think that an effective US policy would hurt most Americans, though not by much.]

Waldmann thinks the current price of an EU carbon credit – he thinks it’s €17.50, but a trading website says it’s €23/tonne) is too high. What’s the test of success? The old EU (EU-15) is on track to meet its Kyoto targets. It depends on whether you think Kyoto is anywhere near tough enough. Climate experts, Stern, the EU heads of government, and everybody at Bali apart from the US delegation, don’t think so. ¡Átame!